ASB rejects call for fixed-asset websites

A call from Britannia Software, the South London-based assetored by standard setter. management specialist, for company websites to be classed as fixed assets has been rejected by the Accounting Standards Board.

Under accounting standard FRS10, websites are classed alongside marketing items as intangible assets that should be written off and not capitalised.

Britannia raised the issue because more and more companies are using websites to promote themselves, conduct commercial transactions and report information about their financial performance. But classifying them as fixed assets would require a rewrite of current accounting standards.

George Snelgrove, managing director of Britannia Software, said companies can measure their initial website investment and depreciate the figure each year, as with other fixed assets like office equipment.

‘Websites are unlike normal marketing material,’ he said. ‘You can measure the up-front cost of development and get the benefit over a fixed time.’

Snelgrove added that, with UK companies regularly updating websites, finance directors could revalue the sites to spread out the impact on the profit & loss accounts.

But Britannia’s plea fell flat with the Accounting Standards Board. ASB technical director Allan Cook said that as web-sites had no clear market value, they could not be capitalised.

‘A website is unique to a company and is an ongoing relationship with the public. You don’t capitalise your investor relations team,’ Cook argued.

He also ruled out the possibility of a company capitalising a website acquired in a takeover or designed by a third-party website developer.

‘If you pay a company to develop a website it has no carry-over value, and you write it off in a year,’ he said.

John Harley, the corporate finance partner who heads PricewaterhouseCoopers’ information and communications team, explained financial markets still had no reliable way of valuing websites, lending some weight to the ASB’s stance.

‘A website per se is worth absolutely nothing,’ he said. ‘No one has any certainty about how to value a brand or intellectual property rights.

What is worth money are the revenues you can derive from that site.’

As a result, acquisitions involving website operators such as internet service providers and ‘portals’ such as Excite are based on prices extrapolated from the companies’ turnovers.

But Paul Jephcott, FD of accounting software specialist Pegasus, lent theoretical support to Britannia’s campaign.

‘Couldn’t a website be a fixed asset that falls under FRS 15?’ he reasoned.

‘If you want to hold a website on your balance sheets, then you have to detail its direct labour costs.’

Related reading